Earlier this month, John McGrath bemoaned the housing ‘shrinkflation’ that has crushed turnover and consequently McGrath Real Estate’s earnings:
Dear fellow shareholder,
I start my address today by acknowledging that our company’s first 12 months as a publicly listed entity have been defined by some unprecedented conditions in our most important markets.
They are important elements in understanding the context in which we operate, and have been reflected in our share price. We share your disappointment.
After considering various corporate events during calendar 2014 and 2015, we opted to IPO, and did so in early December 2015. Our first half performance was on budget. Then, it was as though every vendor woke up in the New Year and
made a resolution not to sell.
This chart shows how listing volumes as a percent of total property stock are currently at levels we have not seen since the data set began…
For much of calendar 2016, we have been in an environment in which vendors are reticent to sell, fearing they will not get back into the market. In 2005, residents in Australian Capital Cities would move house on average every 6.7 years, and apartment every 5.9 years. Today that is 10.7 years and 9 years respectively. This contributes to the decline in volumes available for sale, eroding housing affordability in many capital cities of Australia, including Sydney.
Yesterday, CoreLogic’s Cameron Kusher published a report looking at the total value of sales, which confirms the big drop in turnover highlighted by McGrath:
The total value of transactions is an important figure to consider for real estate and mortgage professionals. Because commission is typically calculated for real estate agents on the value of the sale and for mortgage providers based on the size of the loan, understanding where the value of transactions is greatest is valuable. The following analysis looks at the value of sales across council areas; keep in mind that the size of the council region will have an impact. We have only included regions that have had at least 50 settled sales in both 2015 and 2016.
Brisbane has recorded the greatest total value of sales over the past year at $16.8 billion however, the value is -11.2% lower over the year. The first table shows the total value of sales over the past year and the previous year for each of the 20 council areas nationally with the greatest value of sales. Each of the top 20 regions listed have seen fewer overall sales and a lower total value of sales relative to 2015…
With the turnover of housing stock reducing across the country and fewer homes available for sale the amount of commission is reducing.
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That, dear readers is ‘shrinkflation’ writ large: the unusual situation whereby prices rise so high that fewer and fewer people can participate in the housing market, causing the market to narrow and turnover to contract.
Shrinkflation is not just a big deal for real estate professionals, but state governments as well given their extreme reliance on stamp duty receipts.
Hopefully the pressures caused by shrinkflation will heighten calls to replace stamp duties with a broad-based land tax, which would be a genuinely productivity enhancing reform.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
